Economy

Malpass of the World Bank sees the risk of a possible economic recession in Europe

Malpass of the World Bank sees the risk of a possible economic recession in Europe

By Andrea Shalal

WASHINGTON (Reuters) – World Bank President David Malpass warned on Wednesday that diversifying global energy production could take years away from Russia after its invasion of Ukraine, prolonging risks of stagnant inflation or a period of low growth and high inflation.

In a speech at Stanford University, Malpass said there was a growing possibility of a recession in Europe, while Chinese growth slowed sharply and US economic output contracted in the first half of the year.

These developments will have serious consequences for developing countries, Malpass said, citing what he called “dependency” and “exacerbating” challenges to development.

Addressing the current “perfect storm” of higher interest rates, higher inflation and slower growth, Malpass said, requires new approaches to macro and microeconomics, including better targeted spending and efforts with clear messaging to increase supply.

Malpass said the Bank’s upcoming “Poverty and Shared Prosperity” report showed that decades of progress in reducing poverty had slowed by 2015, even before the COVID-19 pandemic, which pushed an additional 70 million people into extreme poverty.

He said the report, due next week, also showed a 4% drop in average global income, the first drop since the bank began measuring this indicator in 1990.

โ€œThe developing world faces a very challenging near-term outlook shaped by a sharp rise in food and energy fertilizer prices, rising interest rates and credit spreads, currency depreciation, and capital outflows,โ€ Malpass said.

“The urgent danger to the developing world is that the sharp slowdown in global growth deepens into the global recession,” he said, noting that many of these countries are still struggling to return to pre-pandemic per capita income levels at a time of increasing climate. change risks.

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It is unclear whether there will be enough global capital to meet the needs of advanced economies – which have adopted fiscal policies in favor of higher debt levels – and still have enough surplus to fund the investment needs of developing countries, Malpass said.

He urged countries to look for ways to reduce inflation beyond the highly simultaneous increases in interest rates now underway, including by increasing fiscal efficiency to direct spending more to the poor and vulnerable.

He said such adjustments would improve global capital allocation, and provide a path to lower inflation while resuming growth in average incomes.

He said more funding is urgently needed for education, health preparedness and climate change adaptation, along with steps to reduce the staggering levels of debt burdening many developing countries.

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